S&P Mo Failure Breaks 2-Month Rally, Exposes Bigger Correction

September 9, 2016 7:53AM CDT

Today's obvious momentum failure below our key risk parameter at 2155 discussed in last Fri's Technical Blog confirms 23-Aug's 2192 high as the END of the rally from 27-Jun's 1981 low and new key risk parameter from which all non-bullish decisions like long-covers and bearish punts can now be objectively based and managed. The daily log scale chart below shows an arguably complete 5-wave Elliott sequence from the Jun low and reinforces a count calling for at least a correction of this rally.

Emini Daily

But while it's an easy call to prepare for a "move south" that many have been anticipating for weeks or even months, the daily chart above and weekly log chart below show an absolute ton of former resistance from May'15's 2134 high to Apr'16's 2105 high that must first be approached as a major new support condition within the context of the still-arguable secular bull market.  If there's an area expected to hold a major bull market correction, we believe it is this 2134-to-2105-range over the course of the next few weeks. the Fibonacci MINIMUM 38.2% retrace of Jun-Aug's 1981 - 2192 rally cuts across within this range at 2109 and would seem to reinforce it as a key support candidate.

Emini Weekly

Emini 240

From a short-term perspective the 240-min chart above details this week's resumption of late-Aug's initial counter-trend decline where yesterday's 2170 initial counter-trend and micro 1st-Wave low serves currently as our new short-term risk parameter to any non-bearish decisions. Given the 3rd-wave-manner of today's collapse, we strongly suspect some minor corrective bear-flag behavior ahead of a continued move south.  Following such behavior we'll be able to trail this short-term risk parameter to the upper boundary of that event.  For indeed, if we "suspect" an end to this clear and present intermediate-term downtrend around the 2134-to-2105-range, then a bullish divergence in short-term momentum would be expected to indicate such.  And against the backdrop of the secular bull market shown in the monthly log scale chart below, such a bullish divergence in momentum from an acute area like this 2134-to-2105-range could present THE risk/reward buying opportunity for 4Q16.

In sum, today's bearish divergence in momentum breaks the rally from 27-Jun's 1981 low and exposes a correction lower that we believe has legs for the 21340-to-2105-range.  This momentum failure is of a grossly INsufficient scale however to conclude anything more than a slightly larger-degree correction within the still-unfolding secular bear trend.  To threaten a bull of this magnitude, a commensurately major momentum failure below 27-Jun's 1981 corrective low remains required. As a result of this daily mo failure however, all previously recommended bullish exposure has been advised to be neutralized.  Former 2165-to-2170-range support is expected to provide new near-term resistance ahead of further lateral-to-lower prices that could span a few weeks.  Strength above 2170 is currently required to threaten this interim bearish call.

Emini Monthly

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.